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Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses

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Author Info
Paul Bennett
Kenneth Garbade
John Kambhu

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Abstract

This paper presents three proposals intended to enhance liquidity in the market for U.S. Treasury debt: making principal and interest STRIPS maturing on a common date fungible with each other, aligning the maturity of 2-year debt with either bill maturities or the maturities of longer-term debt, and establishing a facility to allow market participants to exchange (with the Department of the Treasury) single-payment securities with similar, but not identical, maturities. The proposals would enhance liquidity by improving the substitutability of identical and very nearly identical Treasury liabilities, and by increasing the integration of the markets for bills, notes, bonds and STRIPS. The proposals would be complementary to, rather than a substitute for, the initiative to buy back outstanding debt announced in August 1999.

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Publisher Info
Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-083.

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Date of creation: 23 Nov 1999
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Handle: RePEc:fth:nystfi:99-083

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Web page: http://w4.stern.nyu.edu/finance/
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Simpson, W. Gary & Ireland, Timothy C., 1985. "The Impact of Financial Futures on the Cash Market for Treasury Bills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(03), pages 371-379, September. [Downloadable!]
  2. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 367-378, September. [Downloadable!]
  3. Edwin J. Elton & T. Clifton Green, 1998. "Tax and Liquidity Effects in Pricing Government Bonds," Journal of Finance, American Finance Association, vol. 53(5), pages 1533-1562, October. [Downloadable!] (restricted)
  4. Kilcollin, Thomas Eric, 1982. " Difference Systems in Financial Futures Markets," Journal of Finance, American Finance Association, vol. 37(5), pages 1183-97, December. [Downloadable!] (restricted)
  5. Gay, Gerald D. & Manaster, Steven, 1984. "The quality option implicit in futures contracts," Journal of Financial Economics, Elsevier, vol. 13(3), pages 353-370, September. [Downloadable!] (restricted)
  6. Park, Sang Yong & Reinganum, Marc R., 1986. "The puzzling price behavior of treasury bills that mature at the turn of calendar months," Journal of Financial Economics, Elsevier, vol. 16(2), pages 267-283, June. [Downloadable!] (restricted)
  7. Ogden, Joseph P., 1987. "The End of the Month as a Preferred Habitat: A Test of Operational Efficiency in the Money Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(03), pages 329-343, September. [Downloadable!]
  8. Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-004, New York University, Leonard N. Stern School of Business-.
  9. Simon, David P., 1991. "Segmentation in the Treasury Bill Market: Evidence from Cash Management Bills," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(01), pages 97-108, March. [Downloadable!]
  10. Duffie, Darrell, 1996. " Special Repo Rates," Journal of Finance, American Finance Association, vol. 51(2), pages 493-526, June. [Downloadable!] (restricted)
  11. Warga, Arthur, 1992. "Bond Returns, Liquidity, and Missing Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 605-617, December. [Downloadable!]
  12. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December. [Downloadable!] (restricted)
  13. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January. [Downloadable!] (restricted)
  14. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September. [Downloadable!] (restricted)
  15. Boyle, Phelim P, 1989. " The Quality Option and Timing Option in Futures Contracts," Journal of Finance, American Finance Association, vol. 44(1), pages 101-13, March. [Downloadable!] (restricted)
  16. Tanner, J Ernest & Kochin, Levis A, 1971. "The Determinants of the Difference Between Bid and Ask Prices on Government Bonds," Journal of Business, University of Chicago Press, vol. 44(4), pages 375-79, October. [Downloadable!] (restricted)
  17. Lippman, Steven A & McCall, John J, 1986. "An Operational Measure of Liquidity," American Economic Review, American Economic Association, vol. 76(1), pages 43-55, March.
  18. Kamara, Avraham, 1994. "Liquidity, Taxes, and Short-Term Treasury Yields," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(03), pages 403-417, September. [Downloadable!]
  19. Boudoukh, Jacob & Whitelaw, Robert F, 1993. "Liquidity as a Choice Variable: A Lesson from the Japanese Government Bond Market," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(2), pages 265-92. [Downloadable!] (restricted)
  20. Gay, Gerald D. & Manaster, Steven, 1986. "Implicit delivery options and optimal delivery strategies for financial futures contracts," Journal of Financial Economics, Elsevier, vol. 16(1), pages 41-72, May. [Downloadable!] (restricted)
  21. Garbade, Kenneth D & Silber, William L, 1976. "Price Dispersion in the Government Securities Market," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 721-40, August. [Downloadable!] (restricted)
  22. Garbade, Kenneth D & Silber, William L, 1983. "Futures Contracts on Commodities with Multiple Varieties: An Analysis of Premiums and Discounts," Journal of Business, University of Chicago Press, vol. 56(3), pages 249-72, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kenneth D. Garbade & Matthew Rutherford, 2007. "Buybacks in Treasury cash and debt management," Staff Reports 304, Federal Reserve Bank of New York. [Downloadable!]
  2. Michael J. Fleming, 2001. "Financial market implications of the federal debt paydown," Staff Reports 120, Federal Reserve Bank of New York. [Downloadable!]
  3. Michael J. Fleming, 2002. "Are larger Treasury issues more liquid? Evidence from bill reopenings," Staff Reports 145, Federal Reserve Bank of New York. [Downloadable!]
    Other versions:
  4. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108. [Downloadable!]
    Other versions:
  5. Patricia S. Pollard, 2001. "The creation of the Euro and the role of the dollar in international markets," Review, Federal Reserve Bank of St. Louis, issue May, pages 17-36. [Downloadable!]
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